First Published 29th December 2016

Chinese traders charged with trading on hacked nonpublic information stolen from two law firms. Marks first time SEC charges hacking into law firm computer networks.

Washington, DC
- The Securities and Exchange Commission has charged
three Chinese traders with fraudulently trading on hacked
nonpublic market-moving information stolen from two prominent New
York-based law firms, racking up almost $3 million in illegal
profits. The SEC also is seeking an asset freeze that prevents
the traders from cashing in on their illicit gains. The
enforcement action marks the first time the SEC has charged
hacking into a law firm's computer network.

The SEC's complaint alleges that Iat Hong, Bo
Zheng, and Hung Chin executed a deceptive scheme to hack into the
networks of two law firms and steal confidential information
pertaining to firm clients that were considering mergers or
acquisitions.

The incidents involved installing malware on the
law firms' networks, compromising accounts that enabled access to
all email accounts at the firms, and copying and transmitting
dozens of gigabytes of emails to remote internet locations. Hong
and Zheng in particular coveted the emails of attorneys involved
in mergers and acquisitions as they exchanged a list of partners
who performed the work at one of the law firms prior to the hack
at that firm.

In a parallel action, the U.S. Attorney's Office
for the Southern District of New York announced criminal
charges.

The SWC complaint said Hong, Zheng, and Chin
used the stolen confidential information to purchase shares in at
least three public companies ahead of public announcements about
entering into merger agreements. The SEC alleges that they spent
approximately $7.5 million in a one-month period buying shares in
semiconductor company Altera Inc. in advance of a 2015 report
that it was in talks to be acquired by Intel Corporation. Within
12 hours of emails being extracted from one of the firms, Hong
and Chin allegedly began purchasing shares of e-commerce company
Borderfree so aggressively that they accounted for at least 25
percent of the company's trading volume on certain days in
advance of the announcement of a 2015 deal. Hong and Zheng also
allegedly traded in advance of a 2014 merger announcement
involving InterMune, a pharmaceutical company.

Hong's mother is named as a relief defendant in
the SEC's complaint for the purpose of recovering ill-gotten
gains in her accounts resulting from her son's alleged illicit
trading.